Guidelines on Executive and Director Remuneration - ILA

REMUNERATION COMMITTEE
<strong>Guidelines</strong> on Executive and Director Remuneration
With regards to the recommendations of the Commission of the European
Communities and after consultation with its shareholders and major
representatives of the Luxembourg business community, also referring to the
revised version of the “Ten Principles of Corporate Governance of the
Luxembourg Stock Exchange”, the Remuneration Committee of Institut
Luxembourgeois des Administrateurs suggests to adopt the following guiding
principles when defining compensation for executives and non-executive
directors of publicity listed companies. All types of companies, listed or nonlisted,
may consider these guidelines as helpful.
1. The board of directors (supervisory board) should define and implement a
comprehensive remuneration policy, in line with the strategic goals and
objectives of the company. This remuneration policy should cover all
company employees and directors and not be limited to executive or board
level.
2. The company should implement a remuneration policy and supervisory
structures that provide for a comprehensive and adequate remuneration of
its executives and directors promoting the long term sustainability of the
company.
3. The board of directors (supervisory board) should determine a
remuneration committee that designs an executive compensation plan and
submits that plan to the entire board for approval. The remuneration
committee should also elaborate remuneration plans for the board of
directors.
4. The compensation of executives (management) has to be treated
separately from the remuneration of non-executive directors. It is different
in nature, namely with regards to risk-taking, relation to company
performance and profit-sharing.
5. The remuneration committee should be composed exclusively of nonexecutive
members, and it should be chaired by the Chairman of the
Board or an independent director. The remuneration committee should
consist of at least three people.
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REMUNERATION COMMITTEE
6. At least one member of the remuneration committee should have a proven
expertise in the field of executive remuneration, ideally acquired in a
senior human resources responsibility, as well as access to relevant
technical data and market information needed to establish a remuneration
policy in the line with market standards.
7. Given the increasing complexity of incentive and remuneration
arrangements, the remuneration committee may seek the support of
external remuneration consultants. In doing so, it must pay attention to
possible conflicts of interest and concerns as to independence, notably
where the consultant is part of a group that has other fee-paying
relationships with the entity to which remuneration advice is being
provided.
8. In order to provide transparency, the company shall describe its policy for
executive and non-executive director remuneration and provide explicit
and detailed information of the criteria of performance measurement and
related remuneration in its financial reporting (annual report).
9. It is recommended that the remuneration policy of the company is
reviewed on an annual basis.
10. Form, structure and level of remuneration of executives and directors
should primarily fall within the competence of the company and its
shareholders.
11. It is strongly recommended to establish an adequate balance between
fixed and variable remuneration, covering all elements of remuneration
such as share options shares, directors’ fees, retirement and departure
conditions and specific benefits.
12. Variable components of remuneration should be linked to predetermined
and measurable performance criteria, including non-financial criteria.
These criteria should be in line with the medium and long-term objectives
of the company and take into account its effective and potential
development, the wealth created for the company and its shareholders
and the individual and collective performances of the board or the
executive management respectively. The criteria should also take into
consideration the appropriate level of risk defined by the board.
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REMUNERATION COMMITTEE
13. Where a variable component of remuneration is awarded, the company
should consider deferring for a minimum period (e.g. vesting over three
years) a major part of the variable component related to individual
performance.
14. Companies that award variable remuneration based on performance
criteria should be entitled to apply “clawback” clauses that will permit
them to reclaim variable components of remuneration directly related to
individual performance in circumstances of misstatement or misconduct.
15. Executives and non-executive directors shall not be rewarded for failure.
Thus, in particular, severance payments, “parachutes” clauses and other
guaranteed payments not related to performance should be limited to a
certain amount or duration beforehand, in general not exceeding two
years of global remuneration. This should be taken into account when
contractual arrangements are designed and negotiated.
16. The remuneration of non-executive directors should be proportional to
their responsibilities and the time devoted to their functions. Nonexecutive
directors should neither receive remuneration linked to their
individual performance, nor bonuses, long-term incentive plans, benefits in
kind or benefits linked to pension plans.
In addition to the above-mentioned general recommendations, the Remuneration
Committee of Institut Luxembourgeois des Administrateurs refers to the specific
guidelines outlined in CSSF Circular 10/437 with regards to the remuneration
policy of financial undertakings.
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